Guide to Global Payroll Management - 2020 - D-83

Page 5 of 37

Fileid: ... ons/I1042S/2020/A/XML/Cycle05/source

10:31 - 9-Mar-2020

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Appendix D--Federal Forms and Instructions

intermediary (QI), a nonqualified
intermediary (NQI), a withholding
foreign partnership (WP), a withholding
foreign trust (WT), a flow-through entity,
a U.S. branch that is treated as a U.S.
person under Regulations section
1.1441-1(b)(2)(iv)(A), a territory FI, a
nominee under section 1446, and an
authorized agent. A person may be a
withholding agent even if there is no
requirement to withhold from a payment
or if another person has already
withheld the required amount from a
payment.
In most cases, the U.S. person who
pays (or causes to be paid) the item of
U.S. source income to a foreign person
(or to its agent) must withhold. However,
other persons may be required to
withhold. For example, if a payment is
made by a QI (whether or not it
assumes primary withholding
responsibility) and the QI knows that
withholding was not done by the person
from which it received the payment,
then that QI is required to do the
appropriate withholding. In addition,
withholding must be done by any QI that
assumes primary withholding
responsibility under chapters 3 and 4, a
WP, a WT, a U.S. branch that agrees to
be treated as a U.S. person under
Regulations section 1.1441-1(b)(2)(iv)
(A), or an authorized agent. Finally, if a
payment is made by an NQI or a
flow-through entity that knows, or has
reason to know, that withholding was
not done, that NQI or flow-through entity
is required to withhold since it also falls
within the definition of a withholding
agent.
Account holder. Generally, the
account holder is the person that holds
the account. See Regulations section
1.1471-5(a).

Amount subject to withholding.
Generally, an amount subject to
chapter 3 withholding is an amount from
sources within the United States that is
fixed or determinable annual or
periodical (FDAP) income. FDAP
income is all income included in gross
income, including interest (as well as
OID), dividends, rents, royalties, and
compensation. Amounts subject to
chapter 3 withholding do not include
amounts that are not FDAP, such as
most gains from the sale of property
(including market discount and option
premiums), as well as other specific
items of income (such as interest on
bank deposits and short-term OID). See
Regulations section 1.1441-2.
Authorized agent. An agent is an
authorized agent for purposes of filing
Instructions for Form 1042-S (2020)

Form 1042 or making tax deposits and
payments on behalf of its principal
(payer) only if all five of the following
conditions apply.
1. There is a written agreement
between the payer and the person
acting as agent.
2. A Form 8655, Reporting Agent
Authorization, is filed with the IRS if the
agent is filing Form 1042 (in its own
name) on behalf of the payer.
3. The books and records and
relevant personnel of the agent are
available to the payer.
4. The payer remains fully liable for
the acts of its agent and does not assert
any of the defenses that otherwise may
be available.
5. If the agent is filing Form 1042 (in
its own name) on behalf of the payer,
the agent is reported as the withholding
agent in Boxes 12a through 12i and
information about the payer is reported
in Boxes 16a through 16e of the Form
1042-S.
A sponsoring entity is a reporting
agent with respect to withholdable
payments and must fulfill the above
conditions to be an authorized agent.
For more information on these
conditions, see Regulations sections
1.1441-7(c) and 1.1474-1(a)(3)(ii).

Beneficial owner. For payments other
than those for which a reduced rate of
withholding is claimed under an income
tax treaty, the beneficial owner of
income in most cases is the person who
is required under U.S. tax principles to
include the income in gross income on a
tax return. A person is not a beneficial
owner of income, however, to the extent
that person is receiving the income as a
nominee, agent, or custodian, or to the
extent the person is a conduit whose
participation in a transaction is
disregarded. In the case of amounts
paid that do not constitute income,
beneficial ownership is determined as if
the payment were income.
Foreign partnerships, foreign simple
trusts, and foreign grantor trusts are not
the beneficial owners of income paid to
the partnership or trust. The beneficial
owners of income paid to a foreign
partnership in most cases are the
partners in the partnership, provided
that the partner is not itself a
partnership, foreign simple or grantor
trust, nominee, or other agent. The
beneficial owner of income paid to a
foreign simple trust (a foreign trust that
is described in section 651(a)) in most
cases is the beneficiary of the trust, if

the beneficiary is not a foreign
partnership, foreign simple or grantor
trust, nominee, or other agent. The
beneficial owner of a foreign grantor
trust (a foreign trust to the extent that all
or a part of the income of the trust is
treated as owned by the grantor or
another person under sections 671
through 679) is the person treated as
the owner of the trust. The beneficial
owner of income paid to a foreign
complex trust (a foreign trust that is not
a foreign simple trust or foreign grantor
trust) is the trust itself.
The beneficial owner of income paid
to a foreign estate is the estate itself.
A payment to a U.S. partnership,
U.S. trust, or U.S. estate is not subject
to withholding under chapter 3 or 4. A
U.S. partnership, trust, or estate should
provide the withholding agent with a
Form W-9, Request for Taxpayer
Identification Number and Certification.
In most cases, these beneficial owner
rules apply for purposes of section
1446; however, there are exceptions.
1. Chapter 3 withholding rate pool.
A payment of a single type of income,
determined in accordance with the
income codes used to file Form 1042-S,
that is subject to a single rate of
withholding and a single chapter 4
exemption code.
2. Chapter 4 withholding rate pool.
A pool of account holders or payees
provided on an FFI withholding
statement (or a chapter 4 withholding
statement) that is described in
Regulations section 1.1471-1(b)(20).
Disregarded entity. A business entity
that has a single owner and is not a
corporation under Regulations section
301.7701-2(b) is disregarded as an
entity separate from its owner.

Dividend equivalent. To the extent
specified in section 871(m), and the
regulations thereunder, a dividend
equivalent is a payment (within the
meaning of Regulations section
1.871-15(i)) that, directly or indirectly, is
contingent on, or determined by
reference to, the payment of a dividend
from U.S. sources. Dividend equivalent
payments include the following
payments.
1. A substitute dividend made under
a securities lending or sale-repurchase
transaction involving a U.S. stock.
2. A payment made under a
specified notional principal contract or a
specified equity-linked instrument.

-5-

D-83

Guide to Global Payroll Management - 2020

Table of Contents for the Digital Edition of Guide to Global Payroll Management - 2020